After tumbling 14.5% from 44M high of USD75.3 (3 July) to a low of USD64.4 (16 Aug) amid concerns over higher OPEC crude production by end 2018, an easing greenback, sliding US crude stockpiles and supply disruptions from Iran’s sanction saw prices rebounded 12% to USD72.2 levels yesterday. Upside bias to revisit USD75-80 territory amid positive fundamentals and technical outlook.

WTI rallied 2% to hit 4Y high. WTI jumped 2% following OPEC leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday ruled out any immediate extra increase in output, effectively rebuffing a call by Trump for action to cool the market. Overall, consensus view is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next 3-6 months that it will need to resolve through higher oil prices in the region of USD80-90/barrel as markets will tighten once US sanctions against Iran are fully implemented from November amid concerns that the full sanctions on Iran could lead to a loss of 1.5m-2.0m bpd knocked out of the market.

Further upside towards USD75-80 levels in the long term. After slipping 14.5% from 44M high of USD75.3 (3 July) to a low of USD64.4 (16 Aug), WTI rebounded 12% to USD72.2 overnight amid the bullish triangle breakout (daily chart), accompanied by positive weekly and daily technicals. Further rebound targets are USD74-75, followed by the LT objective at USD80. Conversely, failure to defend USD69.8 will witness further retracements towards supports at US$67-68 levels.

Source: Hong Leong Investment Bank Research - 25 Sept 2018